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CPTPP: A victory for reason in trade

14/03/2018

Two distinct styles of international leadership were on display last week. In one case, U.S. President Donald Trump imposed steep tariffs on steel and aluminum to help restore his country’s steel producers. In the other, economic officials from 11 countries signed a trade agreement that set rules and standards and help forge a trans-Pacific economic community. The former is a backward-looking effort that threatens a trade war and mutual impoverishment. The latter anticipates rising living standards for all participants. We applaud the trans-Pacific leaders with vision and hope that U.S. policymakers come to their senses.

Trump followed through on his announcement earlier this month to impose tariffs of 25 percent on steel and 10 percent on aluminum imports. After warning that there would be no exceptions, Trump has since said that he is prepared to be “very flexible.” Mexico and Canada are the first recipients of that newfound generosity: The U.S. president said that tariffs on their exports to the U.S. would depend on the fate of negotiations over the North American Free Trade Agreement. Australia — “a great country” and a “long-term partner” said Trump — may get relief, as could other U.S. security partners.

Japan should be on that list. Punishing Japan makes no sense. Foreign Minister Taro Kono said the tariff decision was “regrettable” and will likely have a “big impact” on economic ties between the two countries. Chief Cabinet Secretary Yoshihide Suga pointed out that Japanese steel and aluminum shipments are no threat to U.S. national security and they have contributed greatly to employment and industry in the U.S. In a statement, Kono also said that Japan would respond “upon careful scrutinization of the impact on Japanese companies and the relationship with the WTO Agreement.”

Meanwhile, half a world away, ministers from 11 countries signed the long-awaited Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The 11 signatories — Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam — represent nearly 500 million people and 13.5 percent of global gross domestic product, or about $10 trillion. One authoritative analysis has concluded that CPTPP should generate an additional $147 billion in global income.

The U.S. was part of the CPTPP’s predecessor, the Trans-Pacific Partnership (TPP), but Trump pulled out of the deal on his first day in office, dismissing it as poorly negotiated and damaging to U.S. national interests. He may have hoped that withdrawal would torpedo the agreement, but the Japanese government recognized its worth and worked to rejuvenate the deal. Prime Minister Shinzo Abe knew what Trump did not: TPP was not just a trade agreement. Its real value is strategic. The TPP — and now the CPTPP — sets rules for regional engagement and integration. It promotes standards and norms that allow all countries to compete equally and fairly and promotes a vision of shared rewards and gains. It is the antithesis of the Trump administration’s zero-sum approach to international relations.

Significantly, the CPTPP is an inclusive agreement. As Chilean Foreign Minister Heraldo Munoz explained, “This will be open to anyone who accepts its components. … It’s in favor of open trade.” Countries that do sign up will enjoy access to more markets and with lower tariffs. It provides more protections to investments and intellectual property, and more transparency is demanded of state-owned enterprises.

One measure of the CPTPP’s success is that other governments are indicating a desire to join. Reportedly, that list includes Indonesia, the Philippines, South Korea, Sri Lanka, Taiwan, Thailand and the United Kingdom. Even China, once identified as a “target” of the TPP — President Barack Obama famously said that “The United States, not countries like China, should write [the rules for trade]” — is said to be considering signing up.

Trump has hinted that he might reconsider his objections to TPP, and other U.S. officials have suggested that is not empty talk. He has demanded that the deal be “improved” to justify U.S. membership. That should not be hard to accomplish. Since many provisions in the original deal have been suspended, they could be reasserted in a revised agreement. This diplomatic sleight of hand would minimize the need for renegotiation (they were agreed to before the U.S. withdrew) and still allow Trump to take credit for improving the terms of the deal.

Regardless of the U.S. decision, Japan, and Abe, deserve credit for their effort to see CPTPP to life. The trade deal is a superior agreement that institutionalizes rules and norms that help not only Japan, but all nations of the region (and indeed the world, as the CPTPP standards can be exported still further). Most importantly, it is a bold statement in favor a multilateral, rules-based approach to international governance — at a time when other troubling approaches are gaining favor.